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The Natural Gas Revolution in Israel

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The Natural Gas Revolution in Israel The Natural Gas Revolution in Israel Shmuel Even and Oded Eran Israel is in the second decade of a natural gas revolution, thanks to natural gas found in large quantities in Israel’s economic waters in the Mediterranean Sea. The use of natural gas is an important contribution to HQYLURQPHQWDOTXDOLW\DQGEULQJVZLWKLWVLJQL¿FDQWHFRQRPLFDGYDQWDJHV At the same time, the gas revolution brings with it several complex GLOHPPDVIRUH[DPSOHKRZWRGLYLGHWKHEHQH¿WVIURPWKHJDVUHVHUYHV between this generation and the next; this division relates to the amount of local consumption and gas export in the current generation and the balance left for the next generation. The gas discoveries have strengthened Israel’s energy security, but have presented a new security challenge, namely, the defense of vital gas installations located far offshore. In the realm of foreign affairs, gas export may make a political contribution, but gas is the source of strife with Lebanon over control of economic waters, and a VLPLODUFRQÀLFWPLJKWDULVHZLWKRWKHUQHLJKERUV The Natural Gas Revolution 7KH ,VUDHOL QDWXUDO JDV UHYROXWLRQ GHYHORSHG LQ WKUHH ZDYHV 7KH ¿UVW wave began in 1999-2000 with the discovery of natural gas in commercial TXDQWLWLHVLQWKHJDV¿HOGV1RDDQG0DUL%RSSRVLWHWKH$VKNHORQFRDVW WKH “Tethys Sea” reserves). Regular gas delivery began in 2004, and in recent years those reserves have been depleted. The second wave began in 2009 ZLWKGLVFRYHU\RIJDVLQWKH¿UVWGULOOLQJLQWKH7DPDU¿HOGLQWKHVHDRSSRVLWH +DLID7KHJDVÀRZIURPWKLV¿HOGEHJDQLQ7KH7DPDU¿HOGHQDEOHG the continued supply of Israeli gas to the economy, and will continue to be 189 Shmuel Even and Oded Eran a central supplier for the economy’s needs in the coming years. The third wave began in 2010 with discovery of gas in drillings in the Leviathan, 7DQLQ6KLPVKRQDQG4DULVK¿HOGVDPRQJRWKHUV:LWKWKHVHGLVFRYHULHV Israel became a potential gas exporter. For export, suitable infrastructure must be constructed – pipelines or gas liquefaction installations. According to the assessment carried out by the Inter-Ministerial Committee to Examine the Government’s Policy Regarding Natural Gas in Israel (known as the Zemach Committee) in 2012, 1 the quantity of gas in Israel’s economic waters that can be extracted at varying levels of certainty VWDQGVDWELOOLRQFXELFPHWHU %&0 7KLV¿JXUHLQFOXGHV a. 5HVHUYHV¿HOGVDWWKHKLJKHVWOHYHORISURGXFWLRQFHUWDLQW\1DWXUDO JDVUHVHUYHVLQWKHVH¿HOGVDUHFODVVL¿HGE\WKUHHOHYHOV&RQ¿UPHG (P1), Expected (P2), and Prospective (P3); reserves in Israel are found PDLQO\LQWKH7DPDU¿HOGDQGDUHHVWLPDWHGDW%&0DWOHYHO3 b. &RQWLQJHQW UHVRXUFHV ¿HOGV ZLWK D ORZHU SUREDELOLW\ RI SURGXFWLRQ which is contingent on various conditions, including technical and economic feasibility and an accepted development plan. Here too there are three levels: low estimate of quantities (C1), best estimate (C2), and high estimate (C3). The Zemach Committee characterized holdings such as Leviathan, Dalit, and Tanin as contingent resources. According to the committee’s estimate, these resources include 520 BCM at level C2. In other words, the total of reserves and contingent resources reaches approximately 800 BCM. c. 3URVSHFWLYH UHVRXUFHV ¿HOGV ZLWK WKH ORZHVW SURGXFWLRQ SURVSHFWV most of which are in a pre-drilling stage, and thus offer estimates alone. 7KHWRWDOTXDQWLW\RIH[WUDFWDEOHJDVLQWKHVH¿HOGVLVHVWLPDWHGDW %&07KHTXDQWLW\RIUHVHUYHVDQGFRQWLQJHQWUHVRXUFHVLQWKHVH¿HOGV can be updated based on future drillings. The natural gas revolution was made possible thanks to large investments from the Israeli business sector, institutional investors, and foreign investors who purchased units of partnership. Another factor was the development of relatively advanced technologies that enable deep water drilling. Drilling of Tamar 1, for example, was carried out at a depth of 4.5 thousand meters below sea level. 190 The Natural Gas Revolution in Israel Following the gas discoveries, the Knesset passed the Natural Gas Sector Law 2002, and over the years, developments and experience prompted amendments to the stipulated regulations. At the same time, main natural gas delivery lines were laid in the country. The government-owned corporation Israel Natural Gas Lines (INGL) was licensed to construct and operate the delivery system, but is not permitted to be involved in other portions of the industry. The delivery rate is uniform for all consumers, and the consumer bears the cost of connection to the delivery system. Until now, gas has mainly replaced coal, oil, and diesel at power stations and industrial plants, including: Israel Chemicals, Dead Sea Works, Nesher &HPHQW(QWHUSULVHV%D]DQ2LO5H¿QHULHV+DLID&KHPLFDOV$PHULFD,VUDHO Paper Works, and Delek Desalination. In 2011, power stations accounted for 82 percent of total gas consumption in Israel, and industry consumed 18 percent. 2 There are also future plans to use natural gas for transportation and as a replacement for cooking gas. Table 1 charts the growth of natural gas supply in Israel over the past decade. Table 1: Natural Gas Supply in Israel Year BCM 2004 1.2 2005 1.6 2006 2.3 2007 2.7 2008 3.8 2009 4.2 2010 5.3 2011 5.0 2012 2. 6 2013 (forecast) 7. 8 2014 (forecast) 8.6 Source: Natural Gas Authority presentation, May 2013 In addition to the natural gas discoveries, efforts are underway to discover and extract oil on Israeli land and in Israeli waters. Oil was the original and preferred target of Israeli energy prospectors, but until now 191 Shmuel Even and Oded Eran they have found only gas. The chances of oil discoveries of large quantities in Israel are estimated to be higher than in the past, due in part to improved drilling technologies and large investments in the sector. A discovery of ODUJHRLOUHVHUYHVLQ,VUDHOFRXOGOHDGWRDPDMRUVWHSIRUZDUGLQ,VUDHO¶V energy economy and to full Israeli energy dependence for a prolonged period, but the oil sector is beyond the scope of this article. The Advantages of Natural Gas Environmental quality and health : Natural gas is created by bacteria from organic material, and is composed nearly entirely of methane. The source RIDVLJQL¿FDQWSRUWLRQRIRUJDQLFPDWHULDOLQWKHUHJLRQLVDQFLHQWVHGLPHQW from the Nile River washed into the Mediterranean Sea. Natural gas burns relatively cleanly in comparison with other fuels such as oil, diesel, and coal, and it emits fewer pollutant gases and greenhouse gases. Power stations that operate on gas can be constructed anywhere, as opposed to coal power stations, which must be constructed on the coast – an already crowded area that is expensive and vital for tourism and recreation. Economic advantages : Natural gas is the least expensive energy product in the Israeli economy. According to the Natural Gas Authority (in May 2013), the price of diesel per energy unit is 3.5 times higher than that of QDWXUDOJDVWKHSULFHRIRLOLVWLPHVKLJKHUDQGWKHSULFHRIOLTXH¿HG petroleum gas is three times higher. The use of natural gas in 2004-2012 saved the economy 22 billion shekels – 17 billion in electricity production costs, and 5 billion in savings in industry. 3 In addition, a power station operated by gas is substantially less expensive to build than a coal power station, and requires a smaller area. The contribution of the gas sector to the Israeli GDP growth, estimated by the OECD, will be 1 percent in 2013 and 0.7 percent in 2014. Natural gas also supplies direct income to the state treasury as a result of royalties and taxes (corporate tax) paid by gas suppliers. In 2010 Finance Minister Yuval Steinitz established the Committee to Examine the Policy on Oil and Gas Resources in Israel (known as the Sheshinsky Committee). 7KH FRPPLWWHH H[DPLQHG KRZ WR GLVWULEXWH WKH SUR¿WV RI QDWXUDO JDV among the state and suppliers, with the state’s share determined by fees, taxation, and royalties on oil and natural gas. In the end, after examining 192 The Natural Gas Revolution in Israel the arrangements in other countries, the committee recommended raising WKHVWDWH¶VVKDUHRIRLODQGJDVSURGXFWLRQSUR¿WVE\DVLJQL¿FDQWDPRXQW The committee’s recommendations were anchored in the Petroleum 3UR¿WV7D[DWLRQ/DZ)LQDOO\SURGXFWLRQRI,VUDHOLJDVFRQWULEXWHV to the reinforcement of the energy sector in Israel, affording employment, research and development infrastructure, academic tracks, and so on. Reduction of Israel’s dependence on foreign energy : Over the next decade, natural gas will become Israel’s main source of energy, and the overall increase in the demand for energy for electricity production, industry, and to a certain extent transportation, 4 will be supplied by natural gas. According to the Natural Gas Authority, the natural gas systems must be treated as critical economic infrastructures, with care taken to provide EDFNXSDQGUHGXQGDQFLHV,QRWKHUZRUGVWKHFRXQWU\FDQQRWEHVDWLV¿HG with matching supply to demand, but must make sure there exists surplus VXSSO\DQGGLYHUVL¿FDWLRQERWKZLWKUHVSHFWWRVXSSOLHUVDQGZLWKUHVSHFW to supply systems for the economy. While important for many countries in the world, the reduction of HQHUJ\GHSHQGHQF\LVSDUWLFXODUO\EHQH¿FLDOIRUWKH6WDWHRI,VUDHODVLWLV still isolated in the Middle East, and the supply lanes to it are narrow and limited. Israel also may risk energy shortages due to events in the world like instability that may affect large oil producers such as Saudi Arabia. Along with other countries, Israel suffered from the oil shortage following the Iranian revolution, which led to soaring prices and supply problems throughout the world. The main lesson learned regarding the development of gas systems and independence of external suppliers can be seen in the
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